Committee of reference report Arizona State Retirement System

TalTIi Stowe
Legislative Research Analyst
(602) 542-4962
Arizona House of Representatives
House Majority Research
REPORT
1700 W. Washington
Phoenix, AZ 85007-2848
F)c((602)542~11
To:
Date:
Subject:
JOINT LEGISLATIVE AUDIT COMMITTEE
Senator Blendu, Chairman
Representative Knaperek, Vice Chairman
December 16,2005
Sunset Review of the Arizona State Retirement System
Attached is the final report ofthe sunset review ofthe Arizona State Retirement System, which was
conducted by the Senate Finance and the House ofRepresentatives Public Institutions & Retirement
Committee ofReference.
This report has been distributed to the following individuals and agencies:
Governor ofthe State of Arizona
The Honorable Janet Napolitano
President ofthe Senate
Senator Ken Bennett
Senate Members
Senator Dean Martin, Cochair
Senator Ken Cheuvront
Senator Jorge Luis Garcia
Senator Jack W. Harper
Senator Jay Tibshraeny
Arizona State Retirement System
Arizona State Library, Archives & Public Records
Office ofthe Auditor General
Senate Majority Staff
Senate Research Staff
Senate Minority Staff
Senate Resource Center
Speaker ofthe House
Representative Jim Weiers
House Members
Representative Trish Groe, Cochair
Representative Jennifer Burns
Representative Meg Burton Cahill
Representative Steve Gallardo
Representative Marian McClure
House Majority Staff
House Research Staff
House Minority Staff
ChiefClerk
December 16, 2005
COMMITTEE OF REFERENCE REPORT
Senate Finance and House of Representatives Public Institutions & Retirement
Committee of Reference
ARIZONA STATE RETIREMENT SYSTEM
Background
Pursuant to § 41 - 2953,A;rizo~~Re\yis8dStatutes~the JointLeg,islative Audit Committee
(JLAC) assigned the sunsetr~\fie~ ofthe ArizollaState Retirement Sy~tetn(~SRS) to the Senate
Finance and House ofRepresentatives PublicJns1itutipns&-Retirement Committee ofReference for
review.
The ASR~was established in 1953 to provide retirement and othe benefits for state
employees, inclqdinguniversity faculty and employees ofpolitical subdiv'
membership c~ntract.Activeteachetsvoted tojoinASRSih1954'llnd tran1 edto.ASl}S. January
1955. In 1979.; tIle Legi~lature enacted.thecUlJ'pnt ASRSbegefit pl~ if70P8rcegtor more~tate
employees .~dJ7~~llervoted toJransfer to.tlle ne",p1~;'I'his new plan beCame effective July 1,
1971. Mos~polit~8(\1 subdivisions subsequently voted to join. Now ASRS provides disabpit~8
survivor an~ retiree health insurance benefits for the Stat7,th~Jhree universities, aUtencoIl1Il1;l.miry
colleges, 14 out of 15 counties and other political subdivisions,
AsqfJune 30,2005, AS has over 400,000 meriibers,inc1uding nearly 70,000rY1ir~es.
Benefits arepaigfrom the ASRS $ illion trust ftmd. The fund consists .()f contributionsfr()m
members andemployers as we11.inc eASRS earns througllinvestments.frh~ ASRSis
overseen by apoarcipf directors thatcon~./F. ofnine members appointed by theGovernor ~d
confirmed by tll~ S8~ate .. Ofthe nine~oard members, four members Ulust hav~ sllbstantial
experience in ec· omics, finance or investment.
Committee ofReferenceSunset Review Prqi:ediires
The Committee ofReferencYIl8lcione public hpariggo~~egnesday, November 16, 2005 to
review the Agency responses, as requiredby~.1}.~.~4! ..t9$4,subsections D and F, and to hear and
accept public testimony. Testimony was received from Lisa Eddy, Performance Audit Manager,
Auditor General's Office; Paul Matson, Director, Arizona State Retirement System; Keith Meredith,
Chairman ofthe Board, Arizona State Retirement System; and Anthony Guarino, Depury Director,
Arizona State Retirement System
2
December 16, 2005
Committee ofReference Recommendations
The Committee of Reference recommended that the Arizona State Retirement System be
continued for ten years.
Attachments
1) Meeting Notice
2) Minutes ofthe Committee of Reference Meeting
3) Agency factors pursuant to F
4) Auditor General PreserltatiQI1
5) ASRS PresentatlOl1
3
Interim agendas can be obtained via the Internet at http://www.azleg.state.az.usllnterimCommittees.asp
ARIZONA STATE LEGISLATURE
INTERIM MEETING NOTICE
OPEN TO THE PUBLIC
SENATE FINANCE AND HOUSE OF REPRESENTATIVES PUBLIC INSTITUTIONS AND
RETIREMENT COMMITTEE OF REFERENCE FOR THE SUNSET HEARING OF:
ARIZONA STATE RETIREMENT SYSTEM
ELECTED OFFICIALS RETIREMENT PLAN
PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
CORRECTIONS OFFICERS RETIREMENT PLAN
Date:
Time:
Place:
Thursday, December 1, 2005
1:00 p.m.
House Hearing Room 5
AGENDA
1. Call to Order - Opening Remarks
2. Arizona State Retirement System (ASRS)
• Presentation by the Auditor General
• Response by the Arizona State Retirement System
• Public Testimony
• Discussion and Recommendations by the Committee of Reference
3. Presentation of Elected Officials Retirement Plan, Public Safety Personnel
Retirement System, and Corrections Officers Retirement Plan
• Public Testimony
• Discussion and Recommendations by the Committee of Reference
4. Adjourn
Members:
Senator Dean Martin, Co-Chair
Senator Ken Cheuvront
Senator Jorge Garcia
Senator Jack Harper
Senator Jay Tibshraeny
11/16/05
jmb
Representative Trish Groe, Co-Chair
Representative Jennifer Burns
Representative Meg Burton Cahill
Representative Steve Gallardo
Representative Marian McClure
People with disabilities may request reasonable accommodations such as interpreters,./
alternative formats, or assistance with physical accessibility. If you require accommodatiomf;·v/
please contact the Chief Clerk's Office at (602) 926-3032, TDD (602) 926-3241. .\i;~"
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ARIZONA STATE LEGISLATURE
Forty-seventh Legislature - First Regular Session
SENATE FINANCE AND HOUSE OF REPRESENTATIVES
PUBLIC INSTITUTIONS AND RETIREMENT COMMITTEE OF REFERENCE
FOR THE SUNSET HEARING OF:
ARIZONA STATE RETIREMENT SYSTEM
ELECTED OFFICIALS RETIREMENT PLAN
PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
CORRECTIONS OFFICERS RETIREMENT PLAN
Minutes of Meeting
Thursday, December 1, 2005
House Hearing Room 5 -- 1:00 p.m.
Cochair Senator Dean Martin called the meeting to order at 1:30 p.m. and attendance was noted
by the secretary.
Members Present
Senator Garcia
Senator Harper
Senator Martin, Cochair
Members Absent
Senator Cheuvront
Speakers Present
Representative Gallardo
Representative McClure
Representative Groe, Cochair
Representative Burns
Representative Burton Cahill
Lisa Eddy, Performance Audit Manager, Arizona State Retirement System
Paul Matson, Director, Arizona State Retirement System
Keith Meredith, Chairman of the Board, Arizona State Retirement System
Anthony Guarino, Deputy Director of Arizona State Retirement System
Jim Hacking, Administrator, Public Safety Personnel Retirement System
Mike Colletto, Lobbyist, Professional Firefighters of Arizona
Lisa Eddy, Performance Audit Manager, Auditor General's Office, ASRS, presented the results
of the Performance Audit and Sunset Review on the Arizona State Retirement System (ASRS)
(see presentation handout, Attachment 1). A list of the findings presented is as follows:
SENATE FINANCE AND HOUSE PIR
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ARIZONA STATE RETIREMENT SYSTEMS
December 1, 2005
1. The ASRS is generally managing its investments appropriately (p. 5, attachment 1);
2. ASRS should improve its performance in paying some benefits (p. 9);
3. ASRS may need to revise its plan to improve response times at its Call Center (p 14).
The presentation also included information on member and employer contribution factors, the
viability ofthe original retirement system and the agency's sunset factors.
Paul Matson, Director, Arizona State Retirement System (ASRS) began his presentation by
mentioning that there were a number of staff members of ASRS present and he introduced Dr.
Keith Meredith, who has been Chairman of the Board for a little over a year. After
complimenting the auditor staff on the professionalism of the audit Ms. Eddy had presented, he
referred to the handouts of the presentation he was about to make (see Attachments 2 through 8).
In pointing out Attachment 2 he stated he would be breaking it up into three sections: pp 1-16
about direct responses to the Auditor General's comments; pp 17-31 strategic planning items at
ASRS, and pp 32-34 - 2006 legislative initiatives for the State Retirement System. He
summarized the findings as follows:
Finding No.1, ASRS investment management generally appropriate. The recommendation to
adopt the six draft policies has been approved. They cover such things as funding process, audit
process, appraisals and method of funding external investment managers in the real estate space.
Recommendation No.2, in respect to monitoring other states' policies and procedures in this
area, Mr. Matson reported that this was and is being done and will be continued. This
recommendation contained three sub-recommendations for improving benefit payments: 1)
timeliness of new retirees; 2) accuracy of new retirees' payments; and 3) timeliness of refunds.
He said a lot of the timeliness and accuracy issues will be resolved by an information technology
plan to be completed by 2007.
Regarding new retirees, the paperwork is to be done in ten days; this phase to be completed by
December of2006.
Some of the minor inaccuracies were deemed to be a function of two areas: 1) inadequate
policies and procedures; and 2) inadequate training. Thestaff has now completed appropriate
training to ensure that there is a homogenous understanding of how to do the calculations; and
the update of the policies and procedures has been virtually completed.
Finding No.3, regarding the Call Center, Recommendation No.1 is to monitor secondary
reasons for calls. This is being investigated to determine if there is a combination of
software ability and time allocation to do so. At present he has different perspectives from
staff members and will continue the research over the next several months. The second
item in this regard is the number of FDE's required in the Call Center. There are two
different statistical analyses; one says 19 and one 24.
2 SENATE FINANCE AND HOUSE PIR
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Cochair Groe requested of Mr. Matson that he elaborate on how he plans to make these
objections come to fruition when he discusses the second part of his presentation,
Continuing with his presentation, Mr. Matson reported ASRS has a plan that will invest 6
percent of the total fund invested in real estate -- geographically (nationally and possibly
internationally) and by product groups (office buildings, hotels, retail, storage, etc.). The
vast majority of assets, approximately 70 percent will be invested in core type real estate
properties which are typically higher grade, more liquid and close to major city centers like
San Francisco, Chicago, New York. Approximately 30 percent of these assets will be
invested in non-core, mostly opportunistic, investments. These are typically investments
through joint-venture projects. The current allocation for real estate is close to 0 percent.
Senator Martin asked about the general overall funding status to which Mr. Matson
responded that it was 86.1 percent, though it was expected to drop to the low 80s over the
next several years before it starts rising again; and that this rate is calculated by financial
analysts and is irrespective of financial tactics.
Senator Martin then asked about the turnover factor. Ms. Matson responded that some
would be five or more years; those more opportunistic, three years or less; that three or
four years would end up being an average turnover holding period for a property.
Senator Martin then asked how joint venture partners are selected. Mr. Matson explained
in detail the process of consulting a number of core real estate consultants and an internal
chief portfolio manager.
Mr. Matson reported that the Information Technology (IT) plan is scheduled for
completion by December 2007; within that framework an online website for members to
check their balance, their statements and what the records show as far as account name and
beneficiary is scheduled for completion by February 6, 2006.
Mr. Matson stated that the Call Center has now two types of staff members, one of which
is higher paid, who although they do not do financial planning or give advice, have benefit
advisor skills; the other type have call center skills. The first would be able to answer the
questions on the spot that now are being answered by "I'll do some research and get back
to you later." He reported that call time wait is now 3 minutes that he hopes to reduce it
further.
Representative Groe asked Mr. Matson to explain what checks and balances were in place
to ensure the success rate with as few employees as necessary. Mr. Matson answered that
their internal audit department would next be auditing the Call Center and the time it takes
to respond to calls.
3 SENATE FINANCE AND HOUSE PIR
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ARIZONA STATE RETIREMENT SYSTEMS
December 1,2005
Anthony Guarino, Deputy Director of ASRS, reported that the staff at the Call Center is at
the number that the Auditor General has recommended and will stay at that number unless
service deteriorates.
Representative Groe asked if there is a date for the internal audit. Mr. Guarino advised that
a new internal auditor was just hired and that it is part of his mandate to schedule it; that
Mr. Guarino would get back with a clarification of time schedule and details of what they
will be doing. He said that additionally the plan is to monitor the call service daily and
monthly report to the board of trustees.
Mr. Matson continued his presentation by giving summaries of his handout (Attachment 2)
focusing on page 25 "Vision and Values" and page 28 "Impact of Cost Reduction
Initiatives" and finally pages 33 and 34, "Legislative Public Policy Initatives for 2006."
Cochair Groe moved that the Committee of Reference recommend to
the Legislature that the Arizona State Retirement System be continued
for ten years. The motion carried by a voice vote.
The next speaker was Jim Hacking, Administrator for the Public Safety Personnel
Retirement System. (PSPRS) (Attachments 3 through 6). Mr. Hacking explained that
PSPRS is the administrative entity that manages and administers benefits for three separate
benefit plans in this state. All the retirement plans are authorized and operate under Title
38, ch 5, art. 3, 4 and 6 of the Arizona Revised States. It is governed by a board of 5
members all of whom are appointed by the Governor and two of whom must have some
investment expertise. The PSPRS has a system of 210 local boards that are responsible for
such things as determining eligibility to participate in the system, determining eligibility
for benefits and actually calculating the benefits that are to be awarded. The central office
monitors and audits the work that is done by the local boards ofPSPRS.
In the case of the Corrections Officers Plan (Attachments 3, 4 and 7), they too have a
system of local boards, 19 of them, and they perform functions similar to those of the
Board of the PSPRS program.
Mr. Hacking then reviewed the options and constraints in trying to improve the fund (see
Attachment 3, pp 11 and 12). Considering the constraints he emphasized that if the only
thing to be done was that the amortization period was changed from 20 to 30 years, the
17.1 percent employer rate would be reduced to 15.44 percent in 2007; a 40-year period
would make it even less. He reported that he is having research done to see what would
happen if the salary growth assumption were reduced from 6 percent to possibly 5 or 512
percent. He said that generally the result would be an improvement in the funding ratio of
the systems and a concomitant reduction in the required employer contribution. As soon as
he receives the projections from the Actuary he will share them with the Committee.
4 SENATE FINANCE AND HOUSE PIR
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ARIZONA STATE RETIREMENT SYSTEMS
December 1, 2005
Mr. Hacking also suggested that consideration be given to making some changes in regard
to the Deferred Retirement Option Plan (DROP) either by setting a statutory rate or interest
to be credited to DROP participant accounts or imposing contribution requirements to one
degree or another on either the employer or employee or both.
Mike Colletto, Lobbyist, Professional Firefighters of Arizona, was asked by Representative
McClure what kind of action he would expect if the DROP program were continued for
those already in it, but otherwise eliminated, or if the rate of return was tied to the actual
interest rate that is in place by the federal government.
Mr. Colletto reported on a plan in which he has been involved and which is being called
reverse DROP. He stated that the firefighters have also obtained a constitutional attorney
who is reviewing both the constitution and case law. He said that the Firefighters' goal is
to work on doing everything possible within the constitutional case law to lower the
employers' contribution rates, and that they are actively working with them in that
regard; that the Firefighters care greatly about the financial stability of this plan because
they do not have Social Security.
Cochair Groe moved that the Committee of Reference recommend to the
Legislature that the Elected Officials Retirement Plan, the Public Safety
Personnel Retirement System and the Corrections Officers' Retirement
Plan be continued for ten years. The motion carried by a voice vote.
Without objection, the meeting adjourned at 2:45 p.m.
Pat Hudock, Committee Secretary
December 6, 2005
(Original minutes, attachments and tape are on file in the Office of the Chief Clerk.)
5 SENATE FINANCE AND HOUSE PIR
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ARIZONA STATE RETIREMENT SYSTEMS
December 1, 2005
ARIZONA STATE RETlREl\1ENT SYSTEl\1
3300 NORTH CENTRAL AVENUE' PO Box33910 • PHOENIX, AZ 85067-3910' PHONE (602) 240-2000
7660 EAST BROADWAY BOULEVARD' SUITE 108· TUCSON, AZ 85710-3776' PHONE (520) 239-3100
TOLL FREE OUTSIDE METRO PHOENIX-AND TUCSON J -800-621-3778
'con tactus@asrs.state.az.us
September 30, 2005
Representative Trish Groe
Arizona House of Representatives
1700 W. Washington
Phoenix, AZ 85007
Dear Ms. Groe:
Paul Matson
Director
Enclosed is the Arizona State Retirement System (ASRS) response to the sunset
factors requested by your office. We have also enclosed, as requested, a copy of the
Board minutes for all meetings in Fiscal Year 2005 and the Annual Report for the Fiscal
Year ended June 30, 2004.
If you have any questions or require further information, please contact my office at
(602) 240-2031.
Paul Matson
Director
Enclosures
cc: Tami Stowe, House Research Analyst
Senator Dean Martin
Sean Laux, Senate Research Analyst
Representative Trish Groe
September 30,2005
Page 2 of 7
1. An identification of the prqblem or the needs that the agency is intended to
address.
The Arizona State Retirement System (ASRS) provides retirement and disability
benefits to its members and also provides access to health insurance coverage for its
retirees.
Additionally, the ASRS is responsible for investing the contributions of employers and
members in a manner that will ensure a long term rate of return and provide the benefits
that have been promised.
Specifically, A.R.S. § 38-712 states:
A. The primary intent of the ASRS is to:
1. Provide an incentive in the recruitment and retention of employees of the
highest possible quality.
2. Contribute toward providing a total compensation package that is generally
equivalent to comparable employment in other public and private
organizations in this state.
3. Provide a retirement system that encourages employees to remain in service
for periods oHime that will provide public employers with the full benefit of the
training and experience gained by the employees.
4. Provide an orderly method of promoting and maintaining a high level of
service to the public through an equitable separation procedure that is
available to employees at retirement or on becoming disabled.
5. Provide a base retirement benefit that is less than one hundred percent of a
member's post-retirement income requirements, recognizing that personal
savings and social security also contribute toward total post-retirement
income requirements.
B. ASRS is a defined benefit plan as described in section 4140) of the internal
revenue code. As provided in section 38-771, some eligible members of ASRS
are entitled to benefits under the defined contribution program administered by
ASRS. With respect to the portion of ASRS that provides benefits to members
entitled to benefits under the defined contribution program that are derived from
employer contributions and that are based partly on the balance of the separate
account of a member, ASRS is a plan described in section 414(k) of the internal
revenue code and shall comply with all applicable provisions of section 414(k) of
the internal revenue code.
C. A public employee's retirement trust fund is established to afford an optimum
degree of security to the members of ASRS. All monies and other assets of
ASRS are a part of the trust fund. All accounts, depositories and funds of ASRS
are included within the trust fund.
Representative Trish Groe
September 30, 2005
Page 3 of 7
D. Except as provided in section 38-738, an employer does not have a beneficial
interest in any asset of the trust fund, and no part of the trust fund may ever
revert to or be paid, directly or indirectly, to an employer. AI/liabilities with
respect to members and their beneficiaries shall be satisfied before any part of
the corpus or income of the trust fund is used for or diverted to purposes other
than for the exclusive benefit of members or their beneficiaries.
2. A statement, to the extent practicable, in quantitative and qualitative terms, of
the objectives of such agency and its anticipated accomplishments.
The ASRS Vision and Values are as follows:
Our Vision
For the benefit of our members, the Arizona State Retirement System will be
a leading state benefit plan administrator in the areas of:
• Core member services
• Funded status
• Investment performance
• Operational effectiveness
This will be accomplished while keeping program benefits and associated
costs relatively aligned and maintaining actuarial and fiscal integrity.
Our Values
Our organizational culture will be based upon the following values:
Service: A commitment to service excellence will permeate the
organization.
Professionalism: A highly capable workforce will promote a professional
and respectful environment and lead the organization.
Improvement: A climate of continuous quality improvement and
enhanced efficiencies will drive the organization.
Diversity: Engagement of diversity by the appreciation, recognition,
and support for all people will propel the organization to
ever greater achievement.
Results: A results-oriented approach to operations will energize
the organization.
Representative Trish Groe
September 30, 2005
Page 4 of?
Core Member Services
In 1994, the year the ASRS had its last sunset audit and performance review,
the ASRS had a total membership of 207,000. Today, the ASRS provides
services to over 400,000 members, including 70,000 retired and 5,000
disabled members.
Some of the core member services performed by the agency include:
o Disbursement of retirement, survivor, and refund payments
o Calculations of benefit estimates and service purchase requests
o Coordination of health insurance and long term disability benefits with
a third party vendor
o Operating a member call center
o Offering educational seminars for members and employers
o Issuing annual benefit statements to members
o Providing newsletters and other publications for members and
employers
o Collection and maintenance of retirement contributions and member
account information
o Compilation of yearly financial statements
ASRS members are generally pleased with the services of the ASRS, as
indicated in the results of our member satisfaction survey_
81%
11%
7%
78%
15%
7%
78%
13%
9%
FY 2005
86%
8%
6%
Overall Member Satisfaction with ASRS
FY 2001 FY 2003
ASRS employees provide good service to members
Satisfied 83% 87%
Neutral 11% 8%
Dissatisfied 7% 5%
ASRS keeps its members informed of matters that affect them
Satisfied 81% 82%
Neutral 15% 13%
Dissatisfied 4% 5%
ASRS is pleasant and easy to do business with
Satisfied 82%
Neutral 11%
Dissatisfied 7%
• Columns may not total 100% due to rounding
Representative Trish Groe
September 30,2005
Page 5 of 7
The ASRS goal is to achieve a member satisfaction rating of 90% or higher for its
major business functions. Although the ASRS has not yet achieved this goal for all
of its services, it is currently implementing a multi-year Information Technology and
Business Re-Engineering effort aimed at substantially improving the efficiency of the
services provided by the ASRS to its members. This project will reduce or eliminate
manual work processes, improve the quality and accuracy of services, and improve
the timeliness of service delivery to the growing population of ASRS members.
As mentioned in the sunset review and performance audit, the ASRS needs to
improve the timeliness of some of its disbursement services. The ASRS believes
the Information Technology Plan that is being implemented will allow us to
accomplish this goal.
Investment Performance
The Investment Management Division of the ASRS is collectively responsible for the
management and oversight of the ASRS' 22 billion dollar portfolio.
ASRS Total Fund Performance
For the period ending June 30, 2005
1 Year 5 Years
Inception
6/30/75
Total Fund 8.5% 2.2% 10.9%
Benchmark 7.8% 1.3% 9.1%
Excess Return 0.7% 0.9% 1.8%
The ASRS has achieved its investment objectives for the long-term, although the
ASRS, as well as most public and private pension funds across the country, did
experience negative mid-term investment returns in 2001 and 2002.
As expressed in the report of the Office of the Auditor General, the ASRS manages
its investments appropriately, utilizing industry standard practices and investment
strategies.
Funded Status
The funded status of the ASRS has declined in recent years due to a combination of
factors, such as significantly increased benefits, lower mid-term investment returns,
very low prior contribution rates, and changing member demographics.
Representative Trish Groe
September 30,2005
Page 6 of 7
Funded Status
For Fiscal Years 1995 - 2004
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
111.8% 113.2% 117.1% 120.7% 116.6% 120.4% 115.1% 106.4% 98.4% 92.5%
* Values shown for 1996 and after are for 401 (a) pension plan only
The ASRS has worked to improve its funding status and mitigate further increases to
the contribution rate through a series of cost reduction initiatives. These initiatives
have collectively reduced the increase in contribution rates by 1.4% and are
projected to save the fund over 2 billion dollars in current and future liabilities.
3. An identification of any other agencies having similar, conflicting, or duplicate
objectives, and an explanation of the manner in which the agency avoids
duplication or conflict with other such agencies.
There are three other public retirement systems in Arizona with similar functions to
the ASRS:
o Public Safety Personnel Retirement System (PSPRS)
o Elected Officials' Retirement Plan (EORP)
o Corrections Officer Retirement Plan (CORP)
The Fund Manager of the PSPRS is responsible for the administration of all three
defined benefit plans.
The functions of the PSPRS Fund Manager do not duplicate those of the Arizona
State Retirement System because the PSPRS Fund Manager administers retirement
plans for different groups of public employees than those covered within the ASRS.
The combined membership of all three plans is less than 10% of the ASRS
membership. Due to the relatively small size of the PSPRS Fund, it could not
administer the benefits of the ASRS without a significant increase in resources.
4. An assessment of the consequences of eliminating the agency or of
consolidating it with another agency.
Even if the ASRS were to be eliminated, its functions cannot be. According to Article
29, Section 1, Paragraph C of the Arizona State Constitution, "Membership in a
public retirement system is a contractual relationship that is subject to article II,
section 25, and public retirement system benefits shall not be diminished or
impaired."
Representative Trish Groe
September 30, 2005
Page 7 of 7
If the ASRS were eliminated, all of the ASRS' 418,000 current members would still
be entitled to retain their Arizona State Retirement System benefits. The current
value of all fund liabilities is approximately 25.9 billion dollars.
If the ASRS were to be dissolved, another entity would be required to assume
responsibility for the administration of retirement, retiree health insurance, and long
term disability benefits on behalf of all the remaining members, until such time as all
remaining members and beneficiaries have been paid. Because the ASRS provides
one of three essential elements necessary for each member to effectively plan for
retirement, the termination of the ASRS would significantly affect the health, safety,
and welfare of its nearly 400,000+ members.
More than 70,000 members receive a monthly pension from the ASRS; another
5,000 receive monthly long term disability payments from the ASRS' disability
administrator. In Fiscal Year 2004 these disbursements totaled $1.4 billion. The
financial well being of all these members could be interrupted or irretrievably harmed
by the dissolution of the ASRS.
Nearly 42,000 retirees currently participate in medical or dental plans directly
through the ASRS; if it were to be eliminated, all these members would see their
health insurance coverage interrupted or eliminated. In fiscal year 2004, more than
$83.4 million dollars was paid to retirees in health insurance subsidies. Additionally,
all the ASRS retirees who currently receive health insurance coverage through their
former employer would see their health insurance supplement, paid to the employer
by the ASRS, eliminated.
Though not immediate, the future retirees of the ASRS would also stand to be
negatively impacted by the elimination of the ASRS.
In addition, the loss of retirement, retiree health insurance, and long term disability
benefits would discourage future employees from joining and remaining in public
service. As a result, many public employers would experience more difficulty hiring
and retaining qualified personnel.
Arizona State Retirement System
lASRS]
Sunset Review
December 1. 2005
./ :
ASRS Services
~ Over 400,000 members
~ ASRS provides:
~ Pension & health insur ance
benefits
~ Disabilitv
~ Educational services
~ 191fTE
.............
. ..'
ASRSBoard
~ 9members
~ Board must have 5ASRS members
~ Board must have 4 public members
~ Public members need significa nt
experience in investment,
economics or finance
...
1
....................
..>
ASRSBudget
.. Estimated FY 2005 Expenditures
.. $23.9 million
.. Expenditures are appropriated from
Pension fund
.. $31.8 million in non-appropriated funds
.. Investmentmana gement
.. Investment consulting
.. Actuarial consullin g
Finding 1
ASRS is generally managing its
investments appropriately.
Investment Management
.. Investment ap proach of balancing long­and
shan-term strategies is common
.. long-term investment strategy
.. Investments are diversified
.. Shan-term investment strategy
.. Global lactica I Asset Allocation
[GlAAl
...........
2
Investment Management
.iii Investment rewrns strongly rei ated to
domestic stock market perlorm ance
.iii ASRS had 56% alloc ation to
domestic equities
.iii Other public pension funds
averaged 44.5%
.iii Perlormance suBered in1999 ­2002
..........
./
Investment Management
.iii ASRS diversifYing into Real Estate
.iii Board approved UP to a6%
allocation
.iii Need to approve and develop
policies and procedures
.'
Finding 2
ASRS should improve its
performance in paving some
benefits
3
Benefit Payments
IiIII ASKS goal is to pay new retirees within
60 days
IiIII 14% of payments were within 31 - 60
days
IiIII Peer funds pay on average 15% of new
retirees within 30 days
...........................
Benefit Payments
IiIII Several factors caused delays
IiIII Payroll verification by employers
IiIII Manual calculations
IiIII Single monthly pavment cvcle
Benefit Payments
IiIII ASKS' internal audit process ide ntified &
corrected inaccuracies
IiIII Two factors created inaccuracies
IiIII Manual calcUlations
IiIIIlnadeQuate procedures
.....
. ...;
4
Benefit Payments
!iii Memberrefunds not consistently
meeting gO al of 45 days
!iii Two factors led to delavs
!iii lengthy manual re views
!iii Two computer systems
................
j
Finding 3
ASRS may need to revise its
plan to improve response times
at its call center.
Call Center
!iii Call Center perform ance fell
!iii Answer rates & wait times wors ened
!iii Member satisfaction decreased
..
5
Call Center - Answer Rate
500/a -,----- ',-, _.'- ~- _._-~_ ...-._._..__._--
25%
- Percent Answered ....... Goal:
Jan04 Jan05
0% i':=:::::.:::---===--========- _
Jan03
Call Center - Wait Time
'5
- Wait lirre - - - . Goal
'0
o
Jan03 Jan04 JanOS
Call Center - Member Satisfaction
1CO%
--~
75%
50%
o•...... JarHl5
6
Call Center
iIIiII Three contribuUng factors
iIIiII More calls
iIIiII Fewerstan
iIIiII More Ume on other duties
......................•
Call Center
iIIiII Plan likely calls for too many stan
iIIiII Staffing model averstates needs
iIIiII Call volume projecUons too hig h
iIIiII ASKS Plan =10 stan
iIIiII Auditor analysis =5stan
..................
..
Questions;»
./
7
Arizona State RetirelTIent SystelTI
(ASRS)
Presentation to the
ASRS Legislative Committee of Reference
with regard to
the ASRS Sunset Audit and Findings and other
important ASRS Initiatives
Presented by Paul Matson, Director
November 10, 2005
Table of Contents
1. Sunset Audit Findings, ASRS Response, and
Current Status of Implementation
2. Cost Saving Initiatives at the ASRS
3. 2006 Legislative Public Policy Initiatives
Sunset Audit Findings, ASRS Response, and
Current Status of Itnpletnentation
ASRS Performance Audit and Sunset Review
[J Auditor General Findings and Recommendations
[J Agency Response
[J Current Status
Finding 1: ASRS' investment management genet*ally
appropriate
Recommendation 1:
CJ The ASRS Real Estate Committee should adopt their draft policies and procedures for
investment in real estate.
Agency Response:
CJ The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Current Status:
CJ 3 policies have been approved
CJ 3 additional policies are pending approval
4
5
Agency Response:
[] The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Recommendation 2:
[] The ASRS should use procedures developed by other state pension plans to help guide its
future development of real estate investment procedures.
ASRS' investment management generally
appropriate
Current Status:
[] The ASRS has discussed with several parties (state pension plans and consultants) policies
and procedures as they relate to institutional real estate investment programs.
Though the conversations were instructive, all parties clearly recognized the distinctions
that exist among state (and private) real estate plans re: their structure (real estate
model) and plan implementation. As such the development of ASRS existing (and future)
real estate procedures will be less gUided by those developed by other state pension plans
but rather more by ASRS's use of concise language deemed to provide a significant level
of due diligence and oversight of ASRS's real estate plan operations.
Finding 1:
Current Status:
I:J See next slide
Agency Response:
I:J The findings of the Auditor General are agreed to and the audit recommendations will be implemented.
Fast and reliable benefit processing is a critical business objective for the ASRS, and a cornerstone of the
agency's business re-engineering and technology efforts. Once the ASRS' efforts in these areas are fully
complete, members of the ASRS will experience benefit payment processing service that is equal to or
better than its peer retirement systems.
As suggested, we will study whether it is feasible and cost effective to implement recommendation lc in
a way that will provide a more immediate benefit to members, yet avoid disruption to planned efforts to
improve this process.
Recommendation 1:
I:J To improve the timeliness of paying new retiree annuities, ASRS should:'
a. Complete the incorporation of the new retiree function into its main data system by December 2006
to allow it to initialize annuities based on currently available data instead of waiting for employer
verification of final payroll details.
b. Complete its ongoing project to convert members' paper and microfiche files to electronic images by
June 2006.
c. Study the cost of implementing a second monthly pay date for new retirees' annuities, weighing any
potential impact upon currently scheduled IT projects against the benefit of reducing new retirees'
wait times for receiving annuity payments.
6
ASRS should improve its performance in
paying some benefits
Finding 2:
Current Status:
a. Complete the incorporation of the new retiree function into its main data system by December
2006 to allow it to initialize annuities based on currently available data instead of waiting for
employer verification of final payroll details.
[] The new retirees project is scheduled to begin on January 2006 and end on December
2006. Currently, the project manager and lead analyst are working on the detailed
project plan, specifically to prioritize functionality deliverables and schedule necessary
resources.
One of the central objectives of the new retiree project is to distribute 90% of initial
payments to new retirees within ten business days of retirement. In discussing how best
to accomplish this objective, the ASRS has identified three key business processes that
must change:
1. Eliminating the requirement of receiving an employer verification of final payroll
before processing a new retiree payment; and
2. Eliminating, where possible,· manual business processes associated with
calculating and adjusting pension amounts; and
3. Eliminating the constraints associated with a monthly batch payment process
The ASRS expects the new retiree automation project to eliminate current constraints and
help the agency meet its objective of providing more timely service without requiring a
significant infusion of resources.
Finding 2: ASRS should improve its performance in,
paying some benefits
7
Finding 2: ASRS should improve its performance in
paying some benefits
Current Status (continued):
b. Complete its ongoing project to convert members' paper and microfiche files to electronic images
by June 2006.
[] The June 2006 completion date for the Backfile Conversion segment of the imaging
project has been extended 2 months to August 2006. This extension will not negatively
affect the deliverables or benefits expected from any of the projects scheduled for 2006,
including the new retiree project.
c. Study the cost of implementing a second monthly pay date for new retirees' annuities, weighing
any potential impact upon currently scheduled IT projects against the benefit of reducing new
retirees' wait times for receiving annuity payments.
[] Staff will be meeting in late November to begin this analysis.
Note: in Fiscal Year 05, members did not indicate that they were dissatisfied with the
new retiree process in general, with less than 10% dissatisfaction for all attributes
associated with this service.
8
9
Recommendation 2:
[J To improve the accuracy of paying new retiree annuities, ASRS should update all procedure
documents related to processing new retirees, and provide training to its staff for the automated
calculation of the highest average monthly salary once this new function is operational.
Current Status:
[J Training - All of the staff who use the workbooks for the new average monthly salary calculation
have been trained on the new process.
[J Desk Procedures - Desk procedure revisions are proceeding as planned and are anticipated to be
complete by January 2006. Further revisions will be completed in conjunction with new. retiree
project scheduled for 2006.
ASRS ShOllld improve its performance in
paying some benefits
Finding 2:
Agency Response:
[J The finding of the Auditor General is agreed to and the audit recommendation will be implemented.
Revisions of desk procedures related to the processing of new retirees are currently under
development. For example, a new automated calculation of the highest average monthly salary
was implemented in July 2005. Training associated with the new salary calculation has been
completed for some staff, and is in the process of being completed for others. This new
calculation, and also the revised desk procedures, will be incorporated into our efforts to further.
automate and re-engineer this business process in 2006. .
Finding 2: ASRS should improve its performance in
paying some benefits
Recommendation 3:
[] To improve the timeliness of paying refunds, ASRS should complete its efforts to
fully incorporate this function into its main computer system by April 2006.
Agency Response:
[] The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Automation and process re-engineering efforts are underway and are proceeding as
planned. It is our expectation that the entire refund process will be significantly
improved when this effort is complete, including reducing the turnaround time for
some payments to as few as ten business days.
Current Status:
[] The forfeiture project is on schedule for release in the first quarter of 2006. We
anticipate that the agency will start seeing an improvement in timeliness in the,
second quarter of 2006.
10
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Recommendation 1:
[J To provide more accurate call volume projections to assist in future staffing plans,
ASRS should consider the feasibility of tracking both the primary and secondary
reasons for incoming calls.
Agency Response:
[J The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
We agree that it is beneficial in many ways to have data regarding the reason(s) for
a member's call. Accordingly, we will work to improve our reporting in this area. Any
changes made to our reporting capabilities must carefully weigh the benefit of
receiving additional data versus the additional time it may take for call center agents
to record the data.
Current Status:
[J Analysis has only recently begun on this effort due to the recruitment and training of
new staff and also due to high call volume associated with member statements and
open enrollment.
11
Finding 3: ASRS should tTIonitor and assess its plan
for improving call center performance
Recommendation 2:
[] If the call center is able to achieve its performance objectives with fewer staff than,
required by the staffing plan, ASRS should redeploy any excess staff to other areas
requiring assistance.
Agency Response:
[] The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
At this time, it is evident to us that both a higher number and more highly skilled
staff are needed to improve call center performance. However, should the ASRS
meet its performance goals for the call center with fewer staff than anticipated, staff
will be utilized to improve the timeliness of its service audit process, walk-in service,
responses to member e-mails, correspondence, and appeals.
Current Status:
[] See next slide
12
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Current Status (continued):
[] If the call center is able to achieve its performance objectives with fewer staff than
required by the staffing plan, ASRS should redeploy any excess staff to other areas
requiring assistance.
Allocation of FTE's at the Call Center
[] The total number of call center staff that have been appropriated to date is as follows:
• 1 manager
• 2 front line supervisors
• 22 call center agents (6 of these were appropriated in July 2005)
[] In March 2005, staff allocated 24 call center agent FTE's to the call center to combat higher
than previously projected call volumes (at the time there were only 14 agents in the call
center, though an additional 6 had been recommended in the budget)
[] Auditors have projected that only 19 call center agent FTE's will be required
[] The ASRS has currently assigned 20 call center agent FTE's to the call center and plans to:
• monitor service levels
• adjust staffing levels accordingly, if necessary
13
14
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Current Status (continued):
[] If the call center is able to achieve its
performance objectives with fewer staff than
required by the staffing plan, ASRS should
redeploy any excess staff to other areas requiring
assistance.
Call Center Statistics and Projections
[] The ASRS has set a goal of answering 80% of
calls within 20 seconds, which is consistent with
best business practices
[] The ASRS has projected that call volume will
increase 10% in each of the next two fiscal years
[] The ASRS has projected that it will need 24 call
center agents to achieve this goal (an addition of
four over the 20 allocated currently)
[] The ASRS budget request includes a request for
these additional four agents
Call Volume
FY Total (+/-)
2003 180,240 4%
2004 204,161 13%
2005 256,661 26%
Abandonment Rate
FY Average (+/-)
2003 4.37 -80%
2004 7.36 68%
2005 32.22 338%
Wait Time
FY Averaqe (+/-)
2003 31.87 -89%
2004 51.44 61 %
2005 223.24 334%
'.
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Current Status (continued):
[] If the call center is able to achieve its performance objectives with fewer staff than required by
the staffing plan, ASRS should redeploy any excess staff to other areas requiring assistance.
Classification Levels, Salaries, and Training of Call Center Staff
[] The ASRS revised its staffing plan for the call center in the Spring of 2005. As a result of higher
classification levels, salaries, and training for call center staff, the agency now has the capability
to easily shift member services staff to other work areas (seminars, walk-ins, or production) as
needed.
[] Of the 20 call center agents:
• 14 are classified as grade 19
[] Average salary = $32,000
• 6 are classified as grade 15
[] Average salary = $27,000
[] Two Levels of Training:
• Call Center Training (5 weeks)
[] All agents receive this level of training
• Benefit Advisor Training (an additional 4 weeks)
[] Grade 19 classified agents will receive this additional training
15
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Classification Levels, Salaries, and Training of Call Center Staff (continued)
Why did the agency decide to increase the classification level?
o The old model was not working
• Of the 43 call center agents (Temp or grade 15) hired between July 2003 and July
2005:
16
Cost Saving Initiatives
at the ASRS
Review & Status Update
Presented by Paul Matson, Director
December 17, 2004
Background
2002 - Issue Identification
lQ03 - Issue Prioritization (High)
lQ03 - Proactive Issue Dissemination
2Q03 - Determination of Plan of Action
2Q03 - Implementation of Plan of Action
18
Three Phase Plan
(With Overlapping Time-Frames)
Phase I: Financial Impact = Short Term or Large
Action = Immediate
Phase II: Financial Impact = Short Term or Modest
Action = Short Term
Phase III: Financial Impact = Long Term or Small or
Residual
Action = Medium Term
Action = Plan Review and
Cultural Change
19
Actionable Issues Actioned
X Benefits:
Guaranteed
X
No Board Position
j Investments: Relative and Variable j
j
j
Levers
Assumptions: Cost Shifting
I
Methods: I Actual Cur~ent and
Future Savings
j
j
20
Phase I
Planning
- Problem Dissemination: Board & Staff
- Problem Concurrence: Board & Staff
- Solution Congruence: Board & Staff
- Determine Plan of Action
- Implement Plan of Action
21
Phase I (continued)
Actions
- Creation of Equity and Efficiency Review Team (EERT)
Recommendation from EERT, Management, Staff, Trustees,
Actuary .
- Service Purchase Legislation, Proposed and Implemented
change from Normal Cost to Actuarial Present Value
Increase Interest Rate on PDAs from 0% to 8%
- Correction of PSI Reserve Account
- Early Retirement Incentives Limited
- LTD Legislative Changes Implemented
- LTD Investment Changes Implemented
Actual Investment Return for 2004
22
Phase II
Planning
- Review Phase I Plan of Action
Actions
- Reinstatement of Equity and Efficiency Review Team
- Continued Engagement
Account Balance Accrual Rate Change (4 % )
- Current Legislative Review Process
- Pop ups
- AHCCCS
23
Phase III
Enhanced "Program & Benefit" Cost Dissemination
Initiative
Culture Change: Vision & Values
Total Plan Review
Remaining Program Changes
Remaining Methodological Changes
Asset Allocation Review
Horizon Issues:
System Design
Health Insurance Design
24
25
c0
.-I--J ~ ~ ~
U 0 0 0 « LJ) LJ) 0
(j) I"'- \.0
CO
d
~
~
~ Q)
OJ -I-J
Q) Q) C/) -
~ Q. E ~ ~ ~ E 0
,.d .- 0 0 0
0 I-- 0
LJ) 0
~ U M I"'- \.0
OJ ~
CO
OJ 0
~ ..=
~
t--I
t--I t--I
t--I t--I t--I
Q) Q) Q)
(/) (/) (/)
CO CO CO ..c ..c ..c
0.. 0.. 0..
Itnpacts to Date
1. Significant Dollar Savings
2. Significantly Reduced Contribution Rate Increases
3. Culture Shift
- Re-engineering Programs = Past
- Preventative Perspective = Future
4. Engagement of Decision Makers and Subject Matter
Experts
27
Impact of Cost Reduction Initiatives
Amounts in Millions of Dollars
Action Reduction in Total Annual Reduction in Present Value of Present Value of
Contribution Rate* Total Contribution Savings on Actuarial Savings on Open
Amount Valuation Basis Group Basis
Service Purchase
Change from normal cost to actuarial
present value .60% $43.8 $338.9 $1,217.6
Increase interest rate on PDAs from .20% $14.6 $177.4 $262.2
0% to 8%
Total Service Purchase Savings .80% $58.4 $516.3 $1,479.3
Decrease interest credited on
withdrawn contributions from 8% to .30% $21.9 $191.3 $542.0
4%
Early Retirement Incentives .22% $16.1 $195.2 $289.1
Correction of PBI Reserve .05% $3.5 $42.0 $42.0 ,
LTD Legislative changes .03% $ 2.2 $26.6 $39.5
Total 1.40% $102.1 $971.4 $2,391.9
**These effects on the total contribution rate are multiplied by current payroll to give annual savings amounts in the next column. The annual
savings amounts are then converted to the present values shown in the last two columns. On the Actuarial Valuation Basis, the savings from
basing service purchases on actuarial present value is a reduction in future service liabilities. For the reduction in the interest crediting rate,
the savings arise from reductions in future service and past service liabilities. Other Actuarial Valuation Basis savings are reductions to past
service liabilities, i.e., capitalizations of the annual savings amounts over 30 years. On the open group basis, present values are generally
perpetuities that anticipate the savings effect on current and future members. The exception is the PBI change, which is a one-time correction.
Some of these changes will not be reflected in their entirety in the 2004 valuation report, but will be captured in future reports as actuarial
gains. For example, the Plan valuation contains no assumption on Payroll Deduction Agreements (PDAs), so the absence of interest charges in
the past has been reflected as an actuarial loss. The change to 8% interest charges will end the losses and eventually reduce the total 28
contribution rate by .20%.
Metnber Cost Reduction Initiatives
* HI RFP Process & Results
29
1--1
1--1
1--1 .... OJ
~ Ul
OJ 1--1 co
Z 1--1 ..c
OJ a..
CIJ 1--1 Ul e
"....- OJ co 0
~ Ul ..c
,.d CO a.. ~
1-
~
.a..c. \.0I- $0 \.l- e
Q0 . --0I--J -O0J
Ul ::J OJ ::J - e OJ Q. Q. .-
Ul E -I-J
co co e .a..c. $1- u0 U0
CO - - - .....-t N (V)
o
('I)
What's Next
By Actions
Implementation of LTD Investment Changes
Implementation of Legislative Initiatives and Notifications
Plan Design Review
Asset Allocation Review
Horizon Issue Research and Conclusions
Reinforcement of Vision & Culture
Implementation of Above While Maintaining Other Initiatives:
* IT Program
* Budget
* Strategic Plan
* Service Maintenance
* Service Remedies.
* Others
31
U)
0)
u~ ..>.-.,
~ .ta-
0 ...-.,
~ ..t..:.
U rJ) > .~ \0
~ u .~..0 .- e 'E -e 0
~ 0- N
~ C\S U I- .4~-J .-- e C) .~ .c .... .e q :;, -c
4C-\SJ H 00-) t0:)
~ > t:
Cf) .- ta
• .....-l ..., - OJJ ta Q.
C) -U) H .- en
\.0 0)
..J
0 U) 0 c:: N U) «
Legislative Public Policy Initiatives for 2006
1. Repeal modified DROP program
• Estimated Savings Range: 0.52% to 1.04%
2. Modify the investment manager requirement that requires 3
years of experience of handling $250 million in assets
3. Clarify statutory language dealing with retirement incentive
programs offered by employers
4. Changes to the LTD program dealing with pre-existing
conditions and offset limitations
• Estimated Savings = 0.32%
33
Legislative Public Policy Initiatives for 2006
5. Modify the way employer contributions are refunded when
a non-retired ASRS member leave membership
• Estimated Savings Range: 0.50% to 0.74%
6. Allows Healthcare Group to bid, if it chooses, on the ASRS
retiree healthcare contract
7. Modify the current rescinding option as it applies to the
post-20Dl retirees
• Estimated Savings Range: 0.18% to 0.36%
8. Conform retirement statutes to Internal Revenue Code,
u.S. Code, state statute, and ASRS practices
34

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TalTIi Stowe
Legislative Research Analyst
(602) 542-4962
Arizona House of Representatives
House Majority Research
REPORT
1700 W. Washington
Phoenix, AZ 85007-2848
F)c((602)542~11
To:
Date:
Subject:
JOINT LEGISLATIVE AUDIT COMMITTEE
Senator Blendu, Chairman
Representative Knaperek, Vice Chairman
December 16,2005
Sunset Review of the Arizona State Retirement System
Attached is the final report ofthe sunset review ofthe Arizona State Retirement System, which was
conducted by the Senate Finance and the House ofRepresentatives Public Institutions & Retirement
Committee ofReference.
This report has been distributed to the following individuals and agencies:
Governor ofthe State of Arizona
The Honorable Janet Napolitano
President ofthe Senate
Senator Ken Bennett
Senate Members
Senator Dean Martin, Cochair
Senator Ken Cheuvront
Senator Jorge Luis Garcia
Senator Jack W. Harper
Senator Jay Tibshraeny
Arizona State Retirement System
Arizona State Library, Archives & Public Records
Office ofthe Auditor General
Senate Majority Staff
Senate Research Staff
Senate Minority Staff
Senate Resource Center
Speaker ofthe House
Representative Jim Weiers
House Members
Representative Trish Groe, Cochair
Representative Jennifer Burns
Representative Meg Burton Cahill
Representative Steve Gallardo
Representative Marian McClure
House Majority Staff
House Research Staff
House Minority Staff
ChiefClerk
December 16, 2005
COMMITTEE OF REFERENCE REPORT
Senate Finance and House of Representatives Public Institutions & Retirement
Committee of Reference
ARIZONA STATE RETIREMENT SYSTEM
Background
Pursuant to § 41 - 2953,A;rizo~~Re\yis8dStatutes~the JointLeg,islative Audit Committee
(JLAC) assigned the sunsetr~\fie~ ofthe ArizollaState Retirement Sy~tetn(~SRS) to the Senate
Finance and House ofRepresentatives PublicJns1itutipns&-Retirement Committee ofReference for
review.
The ASR~was established in 1953 to provide retirement and othe benefits for state
employees, inclqdinguniversity faculty and employees ofpolitical subdiv'
membership c~ntract.Activeteachetsvoted tojoinASRSih1954'llnd tran1 edto.ASl}S. January
1955. In 1979.; tIle Legi~lature enacted.thecUlJ'pnt ASRSbegefit pl~ if70P8rcegtor more~tate
employees .~dJ7~~llervoted toJransfer to.tlle ne",p1~;'I'his new plan beCame effective July 1,
1971. Mos~polit~8(\1 subdivisions subsequently voted to join. Now ASRS provides disabpit~8
survivor an~ retiree health insurance benefits for the Stat7,th~Jhree universities, aUtencoIl1Il1;l.miry
colleges, 14 out of 15 counties and other political subdivisions,
AsqfJune 30,2005, AS has over 400,000 meriibers,inc1uding nearly 70,000rY1ir~es.
Benefits arepaigfrom the ASRS $ illion trust ftmd. The fund consists .()f contributionsfr()m
members andemployers as we11.inc eASRS earns througllinvestments.frh~ ASRSis
overseen by apoarcipf directors thatcon~./F. ofnine members appointed by theGovernor ~d
confirmed by tll~ S8~ate .. Ofthe nine~oard members, four members Ulust hav~ sllbstantial
experience in ec· omics, finance or investment.
Committee ofReferenceSunset Review Prqi:ediires
The Committee ofReferencYIl8lcione public hpariggo~~egnesday, November 16, 2005 to
review the Agency responses, as requiredby~.1}.~.~4! ..t9$4,subsections D and F, and to hear and
accept public testimony. Testimony was received from Lisa Eddy, Performance Audit Manager,
Auditor General's Office; Paul Matson, Director, Arizona State Retirement System; Keith Meredith,
Chairman ofthe Board, Arizona State Retirement System; and Anthony Guarino, Depury Director,
Arizona State Retirement System
2
December 16, 2005
Committee ofReference Recommendations
The Committee of Reference recommended that the Arizona State Retirement System be
continued for ten years.
Attachments
1) Meeting Notice
2) Minutes ofthe Committee of Reference Meeting
3) Agency factors pursuant to F
4) Auditor General PreserltatiQI1
5) ASRS PresentatlOl1
3
Interim agendas can be obtained via the Internet at http://www.azleg.state.az.usllnterimCommittees.asp
ARIZONA STATE LEGISLATURE
INTERIM MEETING NOTICE
OPEN TO THE PUBLIC
SENATE FINANCE AND HOUSE OF REPRESENTATIVES PUBLIC INSTITUTIONS AND
RETIREMENT COMMITTEE OF REFERENCE FOR THE SUNSET HEARING OF:
ARIZONA STATE RETIREMENT SYSTEM
ELECTED OFFICIALS RETIREMENT PLAN
PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
CORRECTIONS OFFICERS RETIREMENT PLAN
Date:
Time:
Place:
Thursday, December 1, 2005
1:00 p.m.
House Hearing Room 5
AGENDA
1. Call to Order - Opening Remarks
2. Arizona State Retirement System (ASRS)
• Presentation by the Auditor General
• Response by the Arizona State Retirement System
• Public Testimony
• Discussion and Recommendations by the Committee of Reference
3. Presentation of Elected Officials Retirement Plan, Public Safety Personnel
Retirement System, and Corrections Officers Retirement Plan
• Public Testimony
• Discussion and Recommendations by the Committee of Reference
4. Adjourn
Members:
Senator Dean Martin, Co-Chair
Senator Ken Cheuvront
Senator Jorge Garcia
Senator Jack Harper
Senator Jay Tibshraeny
11/16/05
jmb
Representative Trish Groe, Co-Chair
Representative Jennifer Burns
Representative Meg Burton Cahill
Representative Steve Gallardo
Representative Marian McClure
People with disabilities may request reasonable accommodations such as interpreters,./
alternative formats, or assistance with physical accessibility. If you require accommodatiomf;·v/
please contact the Chief Clerk's Office at (602) 926-3032, TDD (602) 926-3241. .\i;~"
~..
ASRSBudget
.. Estimated FY 2005 Expenditures
.. $23.9 million
.. Expenditures are appropriated from
Pension fund
.. $31.8 million in non-appropriated funds
.. Investmentmana gement
.. Investment consulting
.. Actuarial consullin g
Finding 1
ASRS is generally managing its
investments appropriately.
Investment Management
.. Investment ap proach of balancing long­and
shan-term strategies is common
.. long-term investment strategy
.. Investments are diversified
.. Shan-term investment strategy
.. Global lactica I Asset Allocation
[GlAAl
...........
2
Investment Management
.iii Investment rewrns strongly rei ated to
domestic stock market perlorm ance
.iii ASRS had 56% alloc ation to
domestic equities
.iii Other public pension funds
averaged 44.5%
.iii Perlormance suBered in1999 ­2002
..........
./
Investment Management
.iii ASRS diversifYing into Real Estate
.iii Board approved UP to a6%
allocation
.iii Need to approve and develop
policies and procedures
.'
Finding 2
ASRS should improve its
performance in paving some
benefits
3
Benefit Payments
IiIII ASKS goal is to pay new retirees within
60 days
IiIII 14% of payments were within 31 - 60
days
IiIII Peer funds pay on average 15% of new
retirees within 30 days
...........................
Benefit Payments
IiIII Several factors caused delays
IiIII Payroll verification by employers
IiIII Manual calculations
IiIII Single monthly pavment cvcle
Benefit Payments
IiIII ASKS' internal audit process ide ntified &
corrected inaccuracies
IiIII Two factors created inaccuracies
IiIII Manual calcUlations
IiIIIlnadeQuate procedures
.....
. ...;
4
Benefit Payments
!iii Memberrefunds not consistently
meeting gO al of 45 days
!iii Two factors led to delavs
!iii lengthy manual re views
!iii Two computer systems
................
j
Finding 3
ASRS may need to revise its
plan to improve response times
at its call center.
Call Center
!iii Call Center perform ance fell
!iii Answer rates & wait times wors ened
!iii Member satisfaction decreased
..
5
Call Center - Answer Rate
500/a -,----- ',-, _.'- ~- _._-~_ ...-._._..__._--
25%
- Percent Answered ....... Goal:
Jan04 Jan05
0% i':=:::::.:::---===--========- _
Jan03
Call Center - Wait Time
'5
- Wait lirre - - - . Goal
'0
o
Jan03 Jan04 JanOS
Call Center - Member Satisfaction
1CO%
--~
75%
50%
o•...... JarHl5
6
Call Center
iIIiII Three contribuUng factors
iIIiII More calls
iIIiII Fewerstan
iIIiII More Ume on other duties
......................•
Call Center
iIIiII Plan likely calls for too many stan
iIIiII Staffing model averstates needs
iIIiII Call volume projecUons too hig h
iIIiII ASKS Plan =10 stan
iIIiII Auditor analysis =5stan
..................
..
Questions;»
./
7
Arizona State RetirelTIent SystelTI
(ASRS)
Presentation to the
ASRS Legislative Committee of Reference
with regard to
the ASRS Sunset Audit and Findings and other
important ASRS Initiatives
Presented by Paul Matson, Director
November 10, 2005
Table of Contents
1. Sunset Audit Findings, ASRS Response, and
Current Status of Implementation
2. Cost Saving Initiatives at the ASRS
3. 2006 Legislative Public Policy Initiatives
Sunset Audit Findings, ASRS Response, and
Current Status of Itnpletnentation
ASRS Performance Audit and Sunset Review
[J Auditor General Findings and Recommendations
[J Agency Response
[J Current Status
Finding 1: ASRS' investment management genet*ally
appropriate
Recommendation 1:
CJ The ASRS Real Estate Committee should adopt their draft policies and procedures for
investment in real estate.
Agency Response:
CJ The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Current Status:
CJ 3 policies have been approved
CJ 3 additional policies are pending approval
4
5
Agency Response:
[] The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Recommendation 2:
[] The ASRS should use procedures developed by other state pension plans to help guide its
future development of real estate investment procedures.
ASRS' investment management generally
appropriate
Current Status:
[] The ASRS has discussed with several parties (state pension plans and consultants) policies
and procedures as they relate to institutional real estate investment programs.
Though the conversations were instructive, all parties clearly recognized the distinctions
that exist among state (and private) real estate plans re: their structure (real estate
model) and plan implementation. As such the development of ASRS existing (and future)
real estate procedures will be less gUided by those developed by other state pension plans
but rather more by ASRS's use of concise language deemed to provide a significant level
of due diligence and oversight of ASRS's real estate plan operations.
Finding 1:
Current Status:
I:J See next slide
Agency Response:
I:J The findings of the Auditor General are agreed to and the audit recommendations will be implemented.
Fast and reliable benefit processing is a critical business objective for the ASRS, and a cornerstone of the
agency's business re-engineering and technology efforts. Once the ASRS' efforts in these areas are fully
complete, members of the ASRS will experience benefit payment processing service that is equal to or
better than its peer retirement systems.
As suggested, we will study whether it is feasible and cost effective to implement recommendation lc in
a way that will provide a more immediate benefit to members, yet avoid disruption to planned efforts to
improve this process.
Recommendation 1:
I:J To improve the timeliness of paying new retiree annuities, ASRS should:'
a. Complete the incorporation of the new retiree function into its main data system by December 2006
to allow it to initialize annuities based on currently available data instead of waiting for employer
verification of final payroll details.
b. Complete its ongoing project to convert members' paper and microfiche files to electronic images by
June 2006.
c. Study the cost of implementing a second monthly pay date for new retirees' annuities, weighing any
potential impact upon currently scheduled IT projects against the benefit of reducing new retirees'
wait times for receiving annuity payments.
6
ASRS should improve its performance in
paying some benefits
Finding 2:
Current Status:
a. Complete the incorporation of the new retiree function into its main data system by December
2006 to allow it to initialize annuities based on currently available data instead of waiting for
employer verification of final payroll details.
[] The new retirees project is scheduled to begin on January 2006 and end on December
2006. Currently, the project manager and lead analyst are working on the detailed
project plan, specifically to prioritize functionality deliverables and schedule necessary
resources.
One of the central objectives of the new retiree project is to distribute 90% of initial
payments to new retirees within ten business days of retirement. In discussing how best
to accomplish this objective, the ASRS has identified three key business processes that
must change:
1. Eliminating the requirement of receiving an employer verification of final payroll
before processing a new retiree payment; and
2. Eliminating, where possible,· manual business processes associated with
calculating and adjusting pension amounts; and
3. Eliminating the constraints associated with a monthly batch payment process
The ASRS expects the new retiree automation project to eliminate current constraints and
help the agency meet its objective of providing more timely service without requiring a
significant infusion of resources.
Finding 2: ASRS should improve its performance in,
paying some benefits
7
Finding 2: ASRS should improve its performance in
paying some benefits
Current Status (continued):
b. Complete its ongoing project to convert members' paper and microfiche files to electronic images
by June 2006.
[] The June 2006 completion date for the Backfile Conversion segment of the imaging
project has been extended 2 months to August 2006. This extension will not negatively
affect the deliverables or benefits expected from any of the projects scheduled for 2006,
including the new retiree project.
c. Study the cost of implementing a second monthly pay date for new retirees' annuities, weighing
any potential impact upon currently scheduled IT projects against the benefit of reducing new
retirees' wait times for receiving annuity payments.
[] Staff will be meeting in late November to begin this analysis.
Note: in Fiscal Year 05, members did not indicate that they were dissatisfied with the
new retiree process in general, with less than 10% dissatisfaction for all attributes
associated with this service.
8
9
Recommendation 2:
[J To improve the accuracy of paying new retiree annuities, ASRS should update all procedure
documents related to processing new retirees, and provide training to its staff for the automated
calculation of the highest average monthly salary once this new function is operational.
Current Status:
[J Training - All of the staff who use the workbooks for the new average monthly salary calculation
have been trained on the new process.
[J Desk Procedures - Desk procedure revisions are proceeding as planned and are anticipated to be
complete by January 2006. Further revisions will be completed in conjunction with new. retiree
project scheduled for 2006.
ASRS ShOllld improve its performance in
paying some benefits
Finding 2:
Agency Response:
[J The finding of the Auditor General is agreed to and the audit recommendation will be implemented.
Revisions of desk procedures related to the processing of new retirees are currently under
development. For example, a new automated calculation of the highest average monthly salary
was implemented in July 2005. Training associated with the new salary calculation has been
completed for some staff, and is in the process of being completed for others. This new
calculation, and also the revised desk procedures, will be incorporated into our efforts to further.
automate and re-engineer this business process in 2006. .
Finding 2: ASRS should improve its performance in
paying some benefits
Recommendation 3:
[] To improve the timeliness of paying refunds, ASRS should complete its efforts to
fully incorporate this function into its main computer system by April 2006.
Agency Response:
[] The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Automation and process re-engineering efforts are underway and are proceeding as
planned. It is our expectation that the entire refund process will be significantly
improved when this effort is complete, including reducing the turnaround time for
some payments to as few as ten business days.
Current Status:
[] The forfeiture project is on schedule for release in the first quarter of 2006. We
anticipate that the agency will start seeing an improvement in timeliness in the,
second quarter of 2006.
10
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Recommendation 1:
[J To provide more accurate call volume projections to assist in future staffing plans,
ASRS should consider the feasibility of tracking both the primary and secondary
reasons for incoming calls.
Agency Response:
[J The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
We agree that it is beneficial in many ways to have data regarding the reason(s) for
a member's call. Accordingly, we will work to improve our reporting in this area. Any
changes made to our reporting capabilities must carefully weigh the benefit of
receiving additional data versus the additional time it may take for call center agents
to record the data.
Current Status:
[J Analysis has only recently begun on this effort due to the recruitment and training of
new staff and also due to high call volume associated with member statements and
open enrollment.
11
Finding 3: ASRS should tTIonitor and assess its plan
for improving call center performance
Recommendation 2:
[] If the call center is able to achieve its performance objectives with fewer staff than,
required by the staffing plan, ASRS should redeploy any excess staff to other areas
requiring assistance.
Agency Response:
[] The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
At this time, it is evident to us that both a higher number and more highly skilled
staff are needed to improve call center performance. However, should the ASRS
meet its performance goals for the call center with fewer staff than anticipated, staff
will be utilized to improve the timeliness of its service audit process, walk-in service,
responses to member e-mails, correspondence, and appeals.
Current Status:
[] See next slide
12
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Current Status (continued):
[] If the call center is able to achieve its performance objectives with fewer staff than
required by the staffing plan, ASRS should redeploy any excess staff to other areas
requiring assistance.
Allocation of FTE's at the Call Center
[] The total number of call center staff that have been appropriated to date is as follows:
• 1 manager
• 2 front line supervisors
• 22 call center agents (6 of these were appropriated in July 2005)
[] In March 2005, staff allocated 24 call center agent FTE's to the call center to combat higher
than previously projected call volumes (at the time there were only 14 agents in the call
center, though an additional 6 had been recommended in the budget)
[] Auditors have projected that only 19 call center agent FTE's will be required
[] The ASRS has currently assigned 20 call center agent FTE's to the call center and plans to:
• monitor service levels
• adjust staffing levels accordingly, if necessary
13
14
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Current Status (continued):
[] If the call center is able to achieve its
performance objectives with fewer staff than
required by the staffing plan, ASRS should
redeploy any excess staff to other areas requiring
assistance.
Call Center Statistics and Projections
[] The ASRS has set a goal of answering 80% of
calls within 20 seconds, which is consistent with
best business practices
[] The ASRS has projected that call volume will
increase 10% in each of the next two fiscal years
[] The ASRS has projected that it will need 24 call
center agents to achieve this goal (an addition of
four over the 20 allocated currently)
[] The ASRS budget request includes a request for
these additional four agents
Call Volume
FY Total (+/-)
2003 180,240 4%
2004 204,161 13%
2005 256,661 26%
Abandonment Rate
FY Average (+/-)
2003 4.37 -80%
2004 7.36 68%
2005 32.22 338%
Wait Time
FY Averaqe (+/-)
2003 31.87 -89%
2004 51.44 61 %
2005 223.24 334%
'.
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Current Status (continued):
[] If the call center is able to achieve its performance objectives with fewer staff than required by
the staffing plan, ASRS should redeploy any excess staff to other areas requiring assistance.
Classification Levels, Salaries, and Training of Call Center Staff
[] The ASRS revised its staffing plan for the call center in the Spring of 2005. As a result of higher
classification levels, salaries, and training for call center staff, the agency now has the capability
to easily shift member services staff to other work areas (seminars, walk-ins, or production) as
needed.
[] Of the 20 call center agents:
• 14 are classified as grade 19
[] Average salary = $32,000
• 6 are classified as grade 15
[] Average salary = $27,000
[] Two Levels of Training:
• Call Center Training (5 weeks)
[] All agents receive this level of training
• Benefit Advisor Training (an additional 4 weeks)
[] Grade 19 classified agents will receive this additional training
15
Finding 3: ASRS should monitor and assess its plan
for improving call center performance
Classification Levels, Salaries, and Training of Call Center Staff (continued)
Why did the agency decide to increase the classification level?
o The old model was not working
• Of the 43 call center agents (Temp or grade 15) hired between July 2003 and July
2005:
16
Cost Saving Initiatives
at the ASRS
Review & Status Update
Presented by Paul Matson, Director
December 17, 2004
Background
2002 - Issue Identification
lQ03 - Issue Prioritization (High)
lQ03 - Proactive Issue Dissemination
2Q03 - Determination of Plan of Action
2Q03 - Implementation of Plan of Action
18
Three Phase Plan
(With Overlapping Time-Frames)
Phase I: Financial Impact = Short Term or Large
Action = Immediate
Phase II: Financial Impact = Short Term or Modest
Action = Short Term
Phase III: Financial Impact = Long Term or Small or
Residual
Action = Medium Term
Action = Plan Review and
Cultural Change
19
Actionable Issues Actioned
X Benefits:
Guaranteed
X
No Board Position
j Investments: Relative and Variable j
j
j
Levers
Assumptions: Cost Shifting
I
Methods: I Actual Cur~ent and
Future Savings
j
j
20
Phase I
Planning
- Problem Dissemination: Board & Staff
- Problem Concurrence: Board & Staff
- Solution Congruence: Board & Staff
- Determine Plan of Action
- Implement Plan of Action
21
Phase I (continued)
Actions
- Creation of Equity and Efficiency Review Team (EERT)
Recommendation from EERT, Management, Staff, Trustees,
Actuary .
- Service Purchase Legislation, Proposed and Implemented
change from Normal Cost to Actuarial Present Value
Increase Interest Rate on PDAs from 0% to 8%
- Correction of PSI Reserve Account
- Early Retirement Incentives Limited
- LTD Legislative Changes Implemented
- LTD Investment Changes Implemented
Actual Investment Return for 2004
22
Phase II
Planning
- Review Phase I Plan of Action
Actions
- Reinstatement of Equity and Efficiency Review Team
- Continued Engagement
Account Balance Accrual Rate Change (4 % )
- Current Legislative Review Process
- Pop ups
- AHCCCS
23
Phase III
Enhanced "Program & Benefit" Cost Dissemination
Initiative
Culture Change: Vision & Values
Total Plan Review
Remaining Program Changes
Remaining Methodological Changes
Asset Allocation Review
Horizon Issues:
System Design
Health Insurance Design
24
25
c0
.-I--J ~ ~ ~
U 0 0 0 « LJ) LJ) 0
(j) I"'- \.0
CO
d
~
~
~ Q)
OJ -I-J
Q) Q) C/) -
~ Q. E ~ ~ ~ E 0
,.d .- 0 0 0
0 I-- 0
LJ) 0
~ U M I"'- \.0
OJ ~
CO
OJ 0
~ ..=
~
t--I
t--I t--I
t--I t--I t--I
Q) Q) Q)
(/) (/) (/)
CO CO CO ..c ..c ..c
0.. 0.. 0..
Itnpacts to Date
1. Significant Dollar Savings
2. Significantly Reduced Contribution Rate Increases
3. Culture Shift
- Re-engineering Programs = Past
- Preventative Perspective = Future
4. Engagement of Decision Makers and Subject Matter
Experts
27
Impact of Cost Reduction Initiatives
Amounts in Millions of Dollars
Action Reduction in Total Annual Reduction in Present Value of Present Value of
Contribution Rate* Total Contribution Savings on Actuarial Savings on Open
Amount Valuation Basis Group Basis
Service Purchase
Change from normal cost to actuarial
present value .60% $43.8 $338.9 $1,217.6
Increase interest rate on PDAs from .20% $14.6 $177.4 $262.2
0% to 8%
Total Service Purchase Savings .80% $58.4 $516.3 $1,479.3
Decrease interest credited on
withdrawn contributions from 8% to .30% $21.9 $191.3 $542.0
4%
Early Retirement Incentives .22% $16.1 $195.2 $289.1
Correction of PBI Reserve .05% $3.5 $42.0 $42.0 ,
LTD Legislative changes .03% $ 2.2 $26.6 $39.5
Total 1.40% $102.1 $971.4 $2,391.9
**These effects on the total contribution rate are multiplied by current payroll to give annual savings amounts in the next column. The annual
savings amounts are then converted to the present values shown in the last two columns. On the Actuarial Valuation Basis, the savings from
basing service purchases on actuarial present value is a reduction in future service liabilities. For the reduction in the interest crediting rate,
the savings arise from reductions in future service and past service liabilities. Other Actuarial Valuation Basis savings are reductions to past
service liabilities, i.e., capitalizations of the annual savings amounts over 30 years. On the open group basis, present values are generally
perpetuities that anticipate the savings effect on current and future members. The exception is the PBI change, which is a one-time correction.
Some of these changes will not be reflected in their entirety in the 2004 valuation report, but will be captured in future reports as actuarial
gains. For example, the Plan valuation contains no assumption on Payroll Deduction Agreements (PDAs), so the absence of interest charges in
the past has been reflected as an actuarial loss. The change to 8% interest charges will end the losses and eventually reduce the total 28
contribution rate by .20%.
Metnber Cost Reduction Initiatives
* HI RFP Process & Results
29
1--1
1--1
1--1 .... OJ
~ Ul
OJ 1--1 co
Z 1--1 ..c
OJ a..
CIJ 1--1 Ul e
"....- OJ co 0
~ Ul ..c
,.d CO a.. ~
1-
~
.a..c. \.0I- $0 \.l- e
Q0 . --0I--J -O0J
Ul ::J OJ ::J - e OJ Q. Q. .-
Ul E -I-J
co co e .a..c. $1- u0 U0
CO - - - .....-t N (V)
o
('I)
What's Next
By Actions
Implementation of LTD Investment Changes
Implementation of Legislative Initiatives and Notifications
Plan Design Review
Asset Allocation Review
Horizon Issue Research and Conclusions
Reinforcement of Vision & Culture
Implementation of Above While Maintaining Other Initiatives:
* IT Program
* Budget
* Strategic Plan
* Service Maintenance
* Service Remedies.
* Others
31
U)
0)
u~ ..>.-.,
~ .ta-
0 ...-.,
~ ..t..:.
U rJ) > .~ \0
~ u .~..0 .- e 'E -e 0
~ 0- N
~ C\S U I- .4~-J .-- e C) .~ .c .... .e q :;, -c
4C-\SJ H 00-) t0:)
~ > t:
Cf) .- ta
• .....-l ..., - OJJ ta Q.
C) -U) H .- en
\.0 0)
..J
0 U) 0 c:: N U) «
Legislative Public Policy Initiatives for 2006
1. Repeal modified DROP program
• Estimated Savings Range: 0.52% to 1.04%
2. Modify the investment manager requirement that requires 3
years of experience of handling $250 million in assets
3. Clarify statutory language dealing with retirement incentive
programs offered by employers
4. Changes to the LTD program dealing with pre-existing
conditions and offset limitations
• Estimated Savings = 0.32%
33
Legislative Public Policy Initiatives for 2006
5. Modify the way employer contributions are refunded when
a non-retired ASRS member leave membership
• Estimated Savings Range: 0.50% to 0.74%
6. Allows Healthcare Group to bid, if it chooses, on the ASRS
retiree healthcare contract
7. Modify the current rescinding option as it applies to the
post-20Dl retirees
• Estimated Savings Range: 0.18% to 0.36%
8. Conform retirement statutes to Internal Revenue Code,
u.S. Code, state statute, and ASRS practices
34